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Does the Yield Curve Signal Recessions? New Evidence from an International Panel Data Analysis

Jean-Baptiste Hasse and Quentin Lajaunie
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Jean-Baptiste Hasse: AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique
Quentin Lajaunie: LEDa - Laboratoire d'Economie de Dauphine - CNRS - Centre National de la Recherche Scientifique - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres

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Abstract: In this paper, we reexamine the predictive power of the yield spread across countries and over time. Using a dynamic panel/dichotomous model framework and a unique dataset covering 13 OECD countries over a period of 45 years, we empirically show that the yield spread signals recessions. This result is robust to different econometric specifications, controlling for recession risk factors and time sampling. Using a new cluster analysis methodology, we present empirical evidence of a partial homogeneity of the predictive power of the yield spread. Our results provide a valuable framework for monitoring economic cycles.

Keywords: Yield Spread; Recession; Panel Binary Model; Cluster Analysis (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-rmg
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